1. The assessee in this case is a dealer in stationery goods. For the assessment year 1975-76 his total and taxable turnovers were determined at Rs. 11,11,956 (sic) and Rs. 10,72,304 respectively as against the reported turnovers of Rs. 12,78,110.38 and Rs. 9,75,705.78. The assessing officer made certain additions to the reported turnovers, but we are concerned in this case only with the addition of Rs. 73,278.67 as sales turnover of binding materials taxable at 4 per cent multi-point. The assessee questioned the said addition by filing an appeal before the Appellate Assistant Commissioner. The said appeal having been dismissed the assessee went before the Sales Tax Appellate Tribunal.
2. Before the Tribunal the assessee contended that there was no sale of binding materials by the assessee to the binders, and therefore the entire addition of Rs. 73,278.67 alleged to be the sales turnover of binding materials was not justified. The Tribunal held that there has been in fact sale of the binding materials by the assessee to the binders, and that the sale is established by the factum of the binders having given deduction in the labour charges payable to them to the extent of the value of the binding materials supplied by the assessee. In that view, the Tribunal sustained the addition of the sum of Rs. 73,278.67 to the turnover returned by the assessee. The decision of the Tribunal is order challenge before us.
3. Before we deal with the respective contentions of the parties, it is necessary to state the factual position. The assessee who is a dealer in stationery goods places orders with two binders, namely, Raja Binding Works and Indira Binding Works, for the purpose of binding sold books, stationery books, etc., at agreed labour charges. It is the assessee who supplies paper for the note books and stationery books to be bound by the binders. This is clear from the order placed with the binder, which makes it clear that the paper is supplied by the assessee. In addition to paper, the assessee has supplied the binding materials to the binders to bulk and the approximate cost of binding materials used in relation to a particular work order has been deducted while making out the final bill for the binding charges. Taking note of the fact that the assessee has purchased the binding materials at a particular price which has been passed on to the binders, the assessing authority has proceeded on the basis that there has been a sale of the binding materials from the assessee to the binders, and therefore, the assessee is liable to pay sales tax on his sales of the binding materials. The assessing authority, for its conclusion that there was a sale of binding materials by the assessee to the binders, took into account the following circumstances. The order book and the labour receipts from the binders only show that paper alone is to be supplied by the assessee and not the binding materials. The binding materials had not been supplied against any specific orders placed by the binders. The binding materials such as calico cloth, marble paper, etc., have been supplied to the binders in bulk in consideration of which the binders have allowed a price rebate in their labour bills. Since the binding materials have been supplied to the binders at a specified price, the assessee should be taken to have sold the binding materials for a price. The above reasons given by the assessing authority have been referred to by the Appellate Assistant Commissioner and he has agreed with the view taken by the assessing authority. According to the Appellate Assistant Commissioner, as there is no correlation between the binding materials actually used for a particular work order and the binding materials supplied by the assessee to the binders, the supply of binding materials by the assessee to the binders in bulk for a specified price should be taken to be a sale. When the matter went before the Tribunal, the Tribunal also has taken that view. Since on correlation could be established between the binding materials actually supplied by the assessee and the binding materials actually used in correction with any particular work order and the binding materials were admittedly supplied in bulk by the assessee to the binders, it should be taken to be an independent transaction not connected with any particular work order and as the binding materials have been valued at a particular price it should be taken to be a sale.
4. That the binding materials were supplied by the assessee to the binders in bulk and not with reference to any particular work order is not in dispute. However, what the learned counsel for the assessee contends is that the assessee, with a view to see that cheap binding materials are not used by the binder, even at the time of placing of the work order had stipulated that the binder has to use only the binding materials supplied by the assessee in connection with all the work orders placed by him with the binder and that to the extent of the binding materials used in relation to a particular work order, the cost of the binding materials have to be deducted from the labour charges payable in respect of that work order, and in pursuance of that understanding the assessee purchased binding materials from the market and supplied the same to the binders in bulk for the purpose of utilising the same in connection with all the work orders placed with them. It is said that though the binding materials were supplied in bulk and there is no correlation between the binding materials supplied and the binding materials utilised in any particular work order, the intention of the parties was clearly that the binding materials have to be utilised only in connection with the binding work undertaken by the binders and the parties did not contemplate any transfer of property from the assessee to the binders in the binding materials supplied to them. It is also contended that the supply of paper stands on a separate and different footing and the fact that the supply of paper is referred to in the work order cannot indicate that there is no understanding between the parties as regards the supply of binding materials. As already pointed out, the assessing authority, the appellate authority as well as the Tribunal have proceeded on the basis that since the cost of paper has not been included in the labour bills of the binders there is no reason as to why the binders should give a deduction for the price of binding materials if it had been supplied by the assessee for that particular work and it would have been sufficient for them to make out labour bills only for the actual charges incurred by them excluding the cost of binding materials supplied by the assessee.
5. It is not in dispute that in all the work orders it has been specifically provided that paper is to be supplied by the person who places the order for binding. So far as the supply of paper is concerned, it has been agreed to between the parties and it has become a term of the contract that paper is to be supplied by the person who places orders and the binder has to use that paper and bind them into stationery books. No doubt the order itself does not make any reference to the binding materials. Since the order is silent as to who is to supply the binding materials one can presume that the binding materials are normally to be procured by the binders for use in connection with the various work orders. But as already stated, the assessee's intention was to see that the binder uses the best materials, and therefore, he has undertaken to purchase at his cost the binding materials and supply the same to the binders for using the same for the works undertaken by them on condition that the binders should give rebate for the proportionate value of the binding materials supplied by the assessee. The question is whether the supply of binding materials in those circumstances by the assessee to the binders can be construed as a sale and brought to tax.
6. The reasoning given by the authorities below that since the value of the paper which has been utilised for the binding work has not been deducted, the deduction of the value of the binding materials should be construed as indicating an earlier sale by the assessee to the binder. We are not in a position to understand the above reasoning. It is not as if the binder charges an all inclusive price for the stationery book bound and supplied by him to the assessee. He charges only the binding charges, that means, excluding the cost of the paper. Therefore the fact that the cost of the paper has not been included in the binding charges will not show one way or the other as regards the value of the binding materials which they have chosen to deduct from the labour charges. Admittedly the supply of binding materials has been made by the assessee to the binders. It is no doubt true that such supply was only in bulk and not in relation to any particular work order placed by the assessee. The authorities below have made much about the difficulty in correlating the binding materials supplied and the binding materials actually used in relation to any particular work order. But the difficulty in correlation will not in any way indicate the intention of the parties to treat the supply of binding materials as an outright sale from the assessee to the binders. As has been pointed out by this Court in T.P.S.R. Factory P. Ltd. v. Deputy Commercial Tax Officer  20 STC 419, one of the essential elements of a sale is an agreement between the parties to the transfer of property in the goods from one to the other for a stated price. In this case, though there is a supply of binding materials purchased by the assessee at a particular value to the binders, before that supply is construed as a sale the revenue must establish that the assessee really intended to pass title in the binding materials to the binders so that the binders will get absolute title to the same and deal with the same as their own thereafter. We are of the view that on the facts of this case such as intention cannot be taken to have been established. Merely because the supply of binding materials has not been referred to in the original order placed by the assessee, it cannot be said that the supply will automatically amount to a sale of binding materials. Everything will depend upon the intention of the parties. If the parties intended the supply to be an outright sale of binding materials they would have specifically entered into a contract to that effect. That there cannot be an intention to sell the binding materials by the assessee to the binders will be clear from the fact that neither the assessee nor the binders are dealers in binding materials. Therefore the supply of binding materials by the assessee can only be for the purpose of utilising the same in relation to the work orders placed by him with the binders and not for the purpose of passing the property therein to the binders so that they can deal with it in any manner they like. As a matter of facts the binding materials become the property of the assessee on his purchase, and after binding the the property also continues in him. The supply of binding materials to the binders was only for the purpose of utilising the same in the binding works undertaken by them and merely because the binders gave a reduction in the price to the extent of the value of the binding materials, the binders cannot be said to have become the owners of the binding materials. They are only in the capacity of bailees and they cannot be taken to have become the owners of the binding materials at any time. Therefore we have to hold that there has been no sale of binding materials from the assessee to the binders as has been held by the authorities below.
7. The view we have taken finds support from a decision of a Bench of this Court in State of Madras v. Sheik Ismail & Sons  34 STC 464, to which one of us was a party. In that case a manufacturer of beedies supplied tobacco, beedi leaves and thread to contractors under a written agreement for rolling them into beedies at fixed rate. At the time of the supply of tobacco, beedi leaves and thread the manufacturer had debited their value against the contractor and this was deducted while making payment to the contractor on the supply of finished goods. The question arose as to whether the supply of tobacco, beedi leaves and thread to the contractor amounted to sale. The revenue contended that the parties had proceeded specifically on the basis that there was a sale of tobacco, beedi leaves and thread ass is clear from the written agreement entered into between them, and therefore the supply of these materials should be taken to be a sale. This Court, after considering the contention advanced on behalf of the revenue, held that the agreement read as a whole suggested that though the transaction of supply of tobacco, beedi leaves and thread was notionally shown as a sale by the manufacturer to the contractor, it had not really been treated as an outright sale, that the articles supplied by the manufacturer had been entrusted to the contractor on trust and the contractor could not sell those articles to any one, that debiting the value of the articles against the contractor had been made only to balance the cost of raw materials supplied and the cost of manufactured goods received from the contractor, that there was no payment by the contractor to the manufacturer towards the supply of the articles, and that therefore the transaction of supply of the articles to the contractor could not amount to a sale. We are in entire agreement with the view taken in that case. It is no doubt true, in that case there was a written agreement and the nature of the transaction had to be construed in the light of the various clauses in that agreement and in the case before us there is no written agreement or contract and we are only governed by the work orders placed by the assessee on the binders. The learned Government Pleader makes much of this fact and says that the above decision cannot apply to the facts of the case because of that difference. But we do not see how the existence of a written agreement will make any difference at all. The assessee's claim is not based on any term in the work order. But the assessee relies on the fact that while supplying the binding materials he had no intention to pass title to the binders and that the supply was made only for using the materials in the binding works undertaken by the binders and not as an outright sale. In that case it has been specifically pointed out that the entire bargain between the parties is to be taken into account for determining the nature of the transaction and the question whether there is any outright sale of the materials supplied has to be gauged from the intention of the parties. In this case, the assessee, as already stated, is not a dealer in binding materials and he is only a dealer in stationery articles and the supply of binding materials by him has been made to the binders only to see that they use the binding materials of the assessee's choice and not of any cheap material. As has been held in the above case, in receiving the supply of binding materials the binders are only trustees or bailees till the binding materials are actually used in binding works and they are not at liberty to sell the same outside or use them in relation to work orders obtained from others which they can do if the supply is treated as an outright sale.
8. In this view of the matter, we allow the tax case and set aside the addition of Rs. 73,278.67 as it does not represent the sale price of the binding materials. No costs.